The only remaining stable bastion of revenue and profit in the infrastructure arena—roads—is in jeopardy. Until two quarters ago, infrastructure firms and analysts were bullish on roads: there was robust increase in tolling revenue and healthy operating profitability. In contrast, other infrastructure businesses were in the doldrums. But recent news paints a grim outlook on roads too.

Recently, GMR Infrastructure Ltd terminated a Rs.7,700 crore road project citing delays arising from environmental clearances and handing over of un-encumbered land for construction activity. Earlier, media reports said that GVK Power and Infrastructure Ltd was exiting a Rs.3,300 crore road project. Such exits set a negative precedent for participation in projects awarded by the National Highways Authority of India (NHAI). (Also read: Construction and real estate and cement industry overview)

Analysts say that besides environmental clearances, delay in transfer of existing tolling booths also affects revenue estimates taken into consideration while bidding for the project.

The reasons could be many, but the net result is a higher cost of construction due to delays and stretched working capital, which, in turn, leads to higher interest costs. Together these factors snowball to escalate initial project costs and profit realization. Ideally, road projects (of both GVK and GMR) which have seen no hiccups have turned out operating margins of 75-85% once tolling begins.

Inability to churn out revenues in line with estimates has resulted in construction firms having highly leveraged balance sheets. A Crisil Research report published a month ago pointed out that the number of downgrades (11) surpassed the number of upgrades (7) in the sector since April 2012.

Naturally, interest in road projects is dwindling. Media reports say that nearly 20 highway projects are awaiting clearance from the ministry of environment and forests.

Meanwhile, exiting a project will not help companies get out of the quagmire easily. For instance, GMR has mobilized the site with around 300 employees and the equity infusion in the first phase was expected to be around Rs.700 crore. A decision on these matters will take time and have adverse financial implications. Analysts say that NHAI could either forfeit the bank guarantees of the developer or even bar the firm from participation in future projects at least for a stipulated period—something that will affect order inflows.